Economic turmoil hits Argentina

BUENOS AIRES, Argentina (AP) – Consumer prices are soaring, the treasury is running low on foreign currency and the peso has had its sharpest slide in 12 years. Instead of rioting, though, Argentines are falling back on tried and true survival skills to cope with the turmoil.

Inflation is at about 30 percent and there’s been a 15 percent drop in the peso’s value against the U.S. dollar over a few days. But Argentina has gone through five much more dire economic times since the 1930s.

So some Argentines are hoarding dollars, while others stockpile goods or plow their savings into real estate.

More people ride bikes now following recent increases in public transportation fares. They eat less at restaurants and cook at home. They buy cheap, pirated DVD copies of the latest films rather than go to the cinema. Â

Sofia Basualdo, a 43-year-old geography teacher, responded to growing inflation with a shopping spree to beat further price rises.

“I might pay one peso for a product today, but next week I’ll likely have to pay two pesos,” Basualdo said as she left a Buenos Aires supermarket pushing a shopping cart filled to the brim. “In this country, when you start smelling inflation it’s best to buy and save.”

Â Â Many Argentines note that the current economic woes are not as bad as Argentina’s financial collapse in 2001-2002. Unemployment remains relatively low, and many people benefit from government handouts. Yet they worry the country may be at a tipping point.

“People are adopting defensive measures to survive,” said Jorge Raventos, a political analyst and former spokesman for Argentina’s foreign relations ministry. “People endure this by zig-zagging along, but it’s hard to know how much they can take before they explode.”

Although it is exceedingly difficult because of strict regulations, some people and businesses have succeeded in past years in sending their dollars out of Argentina as a hedge against inflation. Then Deputy Economy Minister Axel Kiciloff last year estimated Argentine individuals and companies had socked away up to $200 billion in undeclared currency outside the country.

But like most people, Carlos Partcha, an 80-year-old retired journalist, has taken the simpler measure of buying U.S. dollars and stashing them under his mattress – as he has done for more than a decade.

“We don’t trust anything anymore. Not even the banking institutions,” Partcha said. “I had saved in dollars, and when the banks froze deposits in 2001, I got pesos back and lost my money.”

“We’re so used to these levels of uncertainty that the Argentine has developed a sort of workout routine to deal with” economic instability, he said.

The crisis 13 years ago was so bad that one of every five Argentines was out of work and some reported going hungry. The peso, which had been tied to the dollar, lost nearly 70 percent of its value.

Banks froze deposits and barricaded behind sheet metal as thousands of protesters unsuccessfully tried to withdraw their savings. At least 27 people died in protests and looting that swept Argentina in December 2001 as South America’s second-largest economy unraveled and eventually defaulted on a debt of more than $100 billion. Argentina saw a revolving door of five presidents over two weeks.

Restoring Argentina’s sense of pride and sovereignty after that collapse has been the central goal of President Cristina Fernandez and her late husband and political predecessor, Nestor Kirchner. The presidential couple negotiated or paid off most of Argentina’s defaulted debt, nationalized the pension system, and retook control of the national airline and oil company. They also kept energy cheap through subsidies and dug deep into the treasury to redirect revenue to the poor through handouts.

For several years, Argentina enjoyed annual growth of 7 percent fueled by the high prices foreigners paid for the country’s soybeans and other agricultural commodities.

But now, Argentina suffers from a shortage of dollars, one of the world’s highest inflation rates and an inability to tap into global credit markets because of its debt default.

Argentina’s economy this year is expected to expand by no more than 1.5 percent, mainly because of lower commodity prices and waning demand from China for its agricultural goods. The government’s policy of nationalizing private firms has also spooked investors.

Inflation estimated last year at 28 percent and projected to be even higher in 2014, forces rounds of wage and price negotiations. Hugo Moyano, one of Argentina’s most powerful union leaders, recently said inflation is “eating up salaries” and “must be corrected and compensated.”

The government recently eased tough restrictions on exchanging pesos for foreign currencies after they backfired by pushing many Argentines to buy dollars on the black market.

Independent economists say the government’s pullback on currency controls is just a bandage for a wounded economy that needs to contain inflation by dialing back public spending. The government, in turn, blames banks, energy companies and big businesses, accusing them of speculating with the peso and raising prices to provoke instability.

Kicillof, now the economy minister, on Wednesday announced agreements with business leaders aimed at keeping the peso’s sharp depreciation from leading to higher prices for consumer goods. Producers of steel, aluminum, metal products, petrochemicals and plastics are to hold prices to the levels of Jan. 21 – the day before the peso’s big drop.

Amid fears of even higher inflation, Argentines are seeking to protect their wealth by buying cars and real estate.

“I’m investing in my own house, building it with my husband. That gives me security because I don’t have to pay rent that constantly goes through the roof,” said Miriam Rodriguez, 35, a maid who lives on the outskirts of Buenos Aires.Â “Bricks are a good way of guaranteeing some stability.”

Rodriguez said rising prices have forced her to make other changes. She’s stopped buying clothes as well as top brands at the supermarkets, and she canceled her Internet and cable TV service. When she gets together for a dinner with friends, everyone brings their own food.

“I’m not worried about the dollar,” she said. “I don’t even have money to go trade for dollars.”

(Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

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